U.S. Sen. Dianne Feinstein (D-Calif.) on Dec. 17 introduced the Addressing Climate Financial Risk Act, a bill that would improve the ability of federal regulators to understand and mitigate risks from climate change within the financial system.

The damage and risk generated by these climate changes – in addition to changes needed to transition to a lower-carbon economy – threaten to severely disrupt real estate values in high-risk areas, dramatically change whole sectors of the economy and make it increasingly unaffordable to insure against risk. These trends, in turn, threaten the stability of the U.S. financial system, making it important to ensure financial regulators approach them in a comprehensive way.

“Climate change is real, it’s happening now and it will have a profound effect on our financial system if we continue to do nothing,” Feinstein said. “The cost of inaction has grown too high. We must act now to dramatically reduce carbon emissions, but we most also guard against the financial strain that we’re seeing because of climate change. And that means ensuring that federal financial regulators have expertise in climate financial risk and develop an approach to mitigate that risk.”

The act aims to establish an advisory committee on climate financial risk. The bill would establish a permanent committee on the Financial Stability Oversight Council made up of experts in climate science, climate economics and climate financial risk. The committee would advise FSOC in producing a report that would include recommendations on how to improve the ability of the U.S. financial regulatory system to identify and mitigate climate risk.

The bill would require federal bank and credit union regulatory agencies to update their supervisory guidance to include climate risk and to develop a strategy to identify and mitigate climate financial risk.

The Addressing Climate Financial Risk Act would require FSOC to specify how it will incorporate climate risk into its decisions about whether to designate risky non-bank financial institutions as requiring additional oversight by the Federal Reserve.

The bill would also require the Federal Insurance Office to produce a report on how to modernize and improve climate risk insurance regulation in the United States. The report would be modeled on FIO’s 2013 report on modernizing state insurance regulation.

Climate change is a global problem that requires international coordination. This bill would provide a sense of Congress that U.S. financial regulators should join the Network for Greening the Financial System, formally join the Basel Committee’s Task Force on Climate-Related Risk and work with international regulators on climate financial risk to the extent possible.